For years, we have been writing about how “fee based” is not the same as “fee only.” In the United States, the term “fee based” is purposefully misleading. In other countries, it is flat out illegal to both give financial advice and profit from what you recommend.

The CFP Board is revising the Standards by which it expects those holding the CFP® mark to abide. An article by InvestmentNews reports:

The CFP Board… added greater emphasis on the appropriate use of the term “fee-only,” by stating clearly that use of terms like “fee-based” — or other similar terms that may mislead clients into a belief that the CFP® professional’s compensation consists solely or predominantly of fees — is prohibited unless all compensation is from fees and there is no sales-related compensation

The actual text from the new proposed CFP Board Standards reads:

12. Duties When Representing Compensation Method
A CFP® professional must not make false or misleading representations regarding the CFP® professional’s or the CFP® Professional’s Firm’s method(s) of compensation.
a. Specific Representations
i. Fee-Only. A CFP® professional may represent his or her compensation method as “fee-only” only if:
a) The CFP® professional and the CFP® Professional’s Firm receive no Sales-Related Compensation; and
b) Related Parties receive no Sales-Related Compensation in connection with any Professional Services the CFP® professional or the CFP® Professional’s Firm provides to Clients.
ii. Fee-Based. CFP Board uses the term “fee and commission” to describe the compensation method of those who receive both fees and Sales-Related Compensation. A CFP® professional who represents that his or her compensation method is “fee-based” or any other term that is not fee-only must:
a) Not use the term in a manner that suggests the CFP® professional or the CFP® Professional’s Firm is fee-only; and
b) Clearly state that either the CFP® professional earns fees and commissions, or the CFP® professional is not fee-only.

The CFP Board changes are a welcome reaction to the misleading representations by some CFP® mark holders.

Here is a snapshot from the website of a life insurance representative here in Charlottesville:

The website waxes about how this representative follows a fiduciary standard “during a fee-based financial planning engagement” but ignores the inherent conflicts of interest in a commission-based compensation scheme. It also fails to disclose the commissions received. Additionally, this particular insurance salesman has an entire page of client testimonials, a violation of section 206(4) of the Investment Advisers Act of 1940.

Advisors who are purposefully misleading do not make good advisors. Alas, they can easily mislead the general public who don’t understand the differences between real fee-only comprehensive financial planners and the fee-based insurance salesmen that say all the right words on their website.

It will be a welcome change when the CFP Board can force CFP® mark holders to remove misleading content from their websites.

Photo by Sweet Ice Cream Photography on Unsplash